As ag’s boom cycle wanes, forecasts see downturn through 2017

As ag’s boom cycle wanes, forecasts see downturn through 2017

Agriculture is nothing if not cyclical. There are boom years, there are bust years, and after several years of boom, when prices of some crops hit stratospheric levels — including the long-dreamed-of dollar cotton — farmers are now seeing the other side of the supply/demand/price picture.

A measure of salvation the last few years has been record yields for some crops, which helped offset declining prices. But this year’s less-than-ideal weather didn’t bring bin-busting crops for many farmers, while prices weakened further.

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Toss into the mix a weakening global economic situation, particularly the downturn in China that has roiled world financial markets, and there hasn’t been a lot of rejoicing over the 2015 crop year. Nor has there been much optimism in forecasts of late.

Farm equipment giant John Deere’s third quarter earnings statement reported sales of agriculture and turf equipment dropping 24 percent for the period, and 25 percent for the first nine months of 2015. Operating profit for the quarter was down sharply from the same period last year ($472 million vs. $941 million), and for the nine months ($1.378 billion vs. $2.967 billion).

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Deere’s projection for fiscal 2015 isn’t bright either; it sees ag/turf equipment sales declining by 25 percent as “lower commodity prices and falling farm incomes continue to pressure demand for agricultural machinery, with declines most pronounced in higher horsepower models.”

The three major equipment manufacturers — Deere, AGCO, and CNH Industrial — reported revenue declines for the first six months of 22 percent to 37 percent for ag/turf. The U.S. Census Bureau reported that for the first seven months of 2015, exports of U.S. farm machinery fell 41 percent.

Rabobank, the global financial service, in its September report, “Contraction Today, Consolidation Tomorrow,” describes conditions in agriculture as “the perfect storm” of too much crops production, a sharp correction in grain values, and contracting farmer margins. “This trend is expected to continue through 2017,” said Ken Zuckerberg, executive director and senior analyst for Rabobank’s Food and Agribusiness Research and Advisory.

Commenting on the farm equipment sales downturn, he says, “The drop in corn and soybean prices has inevitably led to the decline in demand … as these items are usually the first farm input purchase to be delayed or eliminated during a downturn.”

 

TAGS: Outlook
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